Expert Insights

Pros and Cons of Illinois Secure Choice for Small Businesses Answers to frequently asked questions about the Illinois Secure Choice retirement program for small businesses. Since it was launched in 2018, the Illinois Secure Choice retirement program has helped thousands of people in Illinois save for their future. If you’re an employer in Illinois, state laws require you to offer Illinois Secure Choice if you: Effective November 1, 2023, had 5 or more employees during all four quarters of the previous calendar year Have been in operation for at least two years Do not offer an employer-sponsored retirement plan If your company has recently become eligible for Illinois Secure Choice or you’re wondering whether it’s the best choice for your employees, read on for answers to frequently asked questions. 1. Do I have to offer my employees Illinois Secure Choice? No. Illinois laws require businesses with 5 or more employees to offer retirement benefits, but you don’t have to elect Illinois Secure Choice. If you provide a 401(k) plan (or another type of employer-sponsored retirement program), you may request an exemption. 2. What is Illinois Secure Choice? Illinois Secure Choice is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, you must automatically enroll your employees in the program. Specifically, the Illinois plan requires employers to automatically enroll employees at a 5% deferral rate, and contributions are invested in a Roth IRA. As an eligible employer, you must set up the payroll deduction process and remit participating employee contributions to the Secure Choice plan provider. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. 3. Why should I consider Illinois Secure Choice? Illinois Secure Choice is a simple, straightforward way to help your employees save for retirement. It’s administered by a private-sector financial services firm and sponsored by the State of Illinois. As an employer, your role is limited and there are no fees to offer Illinois Secure Choice. 4. Are there any downsides to Illinois Secure Choice? Yes, there are factors that may make Illinois Secure Choice less appealing than other retirement plans like 401(k) plans. Here are some important considerations: Illinois Secure Choice is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate in Illinois Secure Choice. For example, single filers with modified adjusted gross incomes of more than $144,000 in 2022 would not be eligible to contribute. However, 401(k) plans aren’t subject to the same income restrictions. Illinois Secure Choice is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—Illinois Secure Choice only allows after-tax (Roth) contributions. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—IRA contribution limits are lower than 401(k) limits. The maximum may increase annually, based on cost-of-living adjustments (COLA), but not always. (The maximum contribution limits for IRAs stayed stagnant from 2019 through 2021 and increased slightly in 2022.) So even if employees max out their contribution to Illinois Secure Choice, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, Illinois Secure Choice does not. Limited investment options—Illinois Secure Choice offers a relatively limited selection of investments, which may not be appropriate for all investors. Typical 401(k) plans offer a much broader range of investment options and often additional resources such as managed accounts and personalized advice. Potentially higher fees for employees—There is no cost to employers to offer Illinois Secure Choice; however, employees do pay approximately $0.75 per year for every $100 in their account, depending upon their investments. While different 401(k) plans charge different fees, some plans have lower employee fees. Fees are a big consideration because they can erode employee savings over time. 5. Why should I consider a 401(k) plan instead of Illinois Secure Choice? For many employers —even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you’ll benefit from: Tax credits—Thanks to the SECURE Act 2.0, you can now receive up to $15,000 in tax credits over three years to help defray the start-up costs of your 401(k) plan. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over three years. Also, if you plan to make employer contributions, there could be even more tax incentives. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also likely have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contribution limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with Illinois Secure Choice, that means more employee savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. So, what should I do? For any employer who is concerned with attracting and retaining talent in today’s market, offering a 401(k) has become a table-stakes benefit. State mandated plans are designed to help employees save for retirement, but they may lack some of the benefits that offering a 401(k) plan affords. In order to compete for talent, but also to benefit your business’s bottom line with tax savings, we recommend thinking about designing a more thoughtful retirement option that will help you and your employees in the long run. Want to talk about how? Get in touch. Betterment is not a tax advisor, and the information contained in this article is for informational purposes only.

SECURE Act 2.0: Signed into Law Formally called the SECURE 2.0 Act of 2022, the legislation expands retirement plan coverage and makes it easier for employers to offer retirement plan benefits. The SECURE 2.0 Act of 2022 was signed into law on December 29, 2022. Let’s break down each of the key provisions related to 401(k)s, between those that will be required versus those that will be optional, based on their effective year, and whether the provision is geared towards participants, new plans, or all plans (existing and new). Then we’ll highlight which provisions we’re most excited about and why. It's important to note that information regarding Secure 2.0 is subject to change and is not legal guidance. This is not a comprehensive resource with respect to employer-sponsored plans that Betterment does not support. REQUIRED 2023 Participants: Increases the Required Minimum Distribution (RMD) age to 73 in 2023; and to 75 in 2033. Also, failure to take RMD penalty reduced from 50% to 25%, or 10% if the shortfall is corrected within 2 years. 2024 Participants: Elimination of Required Minimum Distribution (RMD) for Roth 401(k) accounts. 2025 All plans with effective dates of 12/29/2022 or later: Automatic enrollment must go into effect by 1/1/2025. Deferrals must be between 3-10%, escalating to 10-15%. Newly auto-enrolled participants must have a 90-day window to request their funds back. All plans: Part-time employees who work at least 500 hours in at least two consecutive years must enter the plan (this was 3 years in the first SECURE Act). Participants: Participants aged 60-63 can contribute up to $10,000 (indexed) as catch up, others over 50 can contribute $7,500 (indexed). 2026 Participants: The IRS determined that anyone who earned $145,000 (indexed) or more in the prior year must make catch-up contributions in Roth dollars. OPTIONAL 2023 New plans: Increases tax credit to up to 100% of plan startup costs for employers with up to 50 employees. Plus a new tax credit on employer contributions for up to $1,000 per participating employee with wages less than $100,000 (indexed). All plans: Employers can provide small non-matching incentives (gift cards) to employees who begin contributing for the first time. All plans: Employers allowed to match in Roth dollars (must be 100% vested), based on selection made by participants. All plans: Employers can rely on participants to self-certify that they have had a safe harbor event that constitutes a deemed hardship. 2024 All plans: Qualified student loan payments can effectively be considered deferrals for purposes of 401k matching contributions. All plans: Emergency savings account within the 401(k) for non-highly compensated employees (NHCEs). Must be funded post tax (Roth), invested in cash or principal reservation vehicle and can be withdrawn from at least once per month, with 4 annual withdrawals fee free. Annual contribution limit is $2,500 (indexed) and automatic enrollment can be applied. All plans: Force out limit increase, from $5,000 to $7,000 All plans: Ability to offer one penalty free withdrawal of up to $1,000 from plans for “unforeseeable or immediate financial needs relating to personal or family emergency expenses.” New plans: SIMPLE IRA plans allowed to be replaced at any time during the year if certain criteria are met. This also waives the 2 year rollover limitation currently in place. New plans: Ability to establish a new, safe harbor plan with no employer contributions requirements and no compliance testing; however, contribution limits will reflect that of an IRA. Top 3 provisions we’re most excited about 1. Automatic enrollment for all (with exceptions). Participation rates at plans with automatic enrollments are much higher than those with voluntary enrollment, based on Betterment’s internal data (87% participation rate with auto-enrollment, 37% without, as of 02/03/23), as well as industry reports. If you’re offering a 401(k) plan to your employees, there’s no better way to get people to use the benefit than automatically enrolling them. Of course, people can always opt-out (which is not common), and the SECURE Act’s provision stipulates that people must be able to get a “refund” of any automatic contributions within 90 days. Which employers are exempt from the automatic enrollment requirement? Plans that have been in effect since before 12/29/22 do not need to add automatic enrollment (unless an existing plan adopts a multiple employer plan (MEP) following 12/29/22). New businesses in existence less than 3 years. Businesses with 10 or fewer employees. Keep in mind any plan is welcome to add automatic enrollment at any time! 2. Student loan payments may qualify for employer matching into a 401(k). More than 40 million Americans are grappling with $1.73 trillion dollars of student debt. Those Americans are less likely to contribute to a 401(k) plan as a result. But if their employer offers a match on 401(k) contributions, those people are missing out, even though they’re trying to do the right thing by paying off their loans. This provision would allow qualifying student loan payments to count as if they’re contributing to a 401(k) and receive their employer’s matching contribution into a 401(k) account, even though they are not contributing to it themselves. It just so happens that Betterment has been preparing for this provision! We already offer a Student Loan Management tool that allows employees to pay off their loans alongside their 401(k) contributions. In the coming months, we’ll be hard at work to build out what’s needed for this new matching contribution provision. 3. Significant tax credit increase if starting a new plan. The SECURE Act of 2019 already provided businesses with fewer than 100 employees a three-year tax credit for up to 50% of plan start-up costs. The new law increases the credit to up to 100% of the costs for employers with up to 50 employees. On top of that, SECURE Act 2.0 offers a new tax credit for 5 years to employers with 50 or fewer employees, encouraging direct contributions to employees. This new tax credit would be up to $1,000 per participating employee with wages less than $100,000 (indexed annually). The credit also applies to employers with 51-100 participants but the amount of the credit is phased out for this group. A few other provisions on our radar: Penalty-free withdrawals in case of domestic abuse. The new law allows domestic abuse survivors to withdraw the lesser of $10,000 or 50% of their 401(k) account, without being subject to the 10% early withdrawal penalty. In addition, they would have the ability to pay the money back over 3 years. Expansion of Employee Plans Compliance Resolution System (EPCRs). To ease the burdens associated with retirement plan administration, this new legislation would expand the current corrections system to allow for more self-corrected errors and exemptions from plan disqualification. Separate application of top heavy rules covering excludable employees. SECURE 2.0 should make annual nondiscrimination testing simpler by allowing plans to separate out certain groups of employees from top heavy testing. Separating out groups of employees is already allowed on ADP, ACP and coverage testing. “Retirement savings lost and found” directs the DOL to create a national, online lost and found database no later than January 1, 2025. So-called “missing participants'' are often either unresponsive or unaware of 401(k) plan funds that are rightfully theirs.

401(k) Considerations for Highly Compensated Employees Help ensure your 401(k) plan benefits every employee – from senior executives to entry-level workers. Read on for more information. Smart savers 401(k) considerations for highly compensated employees A 401(k) plan should help every employee – from senior executives to entry-level workers – save for a more comfortable future. To help ensure highly compensated employees (HCEs) don’t gain an unfair advantage through the 401(k) plan, the IRS implemented certain rules that all plans must follow. Wondering how to navigate these special considerations for HCEs? Read on for answers to commonly asked questions. 1. What is an HCE? According to the IRS, an HCE is an individual who: Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or Received compensation from the business of more than $135,000 (if the preceding year is 2022), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation. 2. Why are there special considerations for HCEs? Does your plan offer a company match? If so, consider this example: Joe is a senior manager earning $200,000 a year. He can easily afford to max out his 401(k) plan contributions and earn the full company match (dollar-for-dollar up to 6%). Thomas is an entry-level administrative assistant earning $35,000 a year. He can only afford to contribute 2% of his paycheck to the 401(k) plan, and therefore, isn’t eligible for the full company match. Not only that, Joe can contribute more – and earn greater tax benefits – than Thomas. It doesn’t seem fair, right? The IRS doesn’t think so either. To ensure HCEs don’t disproportionately benefit from the 401(k) plan, the IRS requires annual compliance tests known as non-discrimination tests. 3. What is non-discrimination testing? In order to retain tax-qualified status, a 401(k) plan must not discriminate in favor of key owners and officers, nor highly compensated employees. This is verified annually by a number of tests, which include: Coverage tests – These tests review the ratio of HCEs benefitting from the plan (i.e., of employees considered highly compensated, what percent are benefiting) against the ratio of non-highly compensated employees (NHCEs) benefiting from the plan. Typically, the NHCE percentage benefiting must be at least 70% or 0.7 times the percentage of HCEs considered benefiting for the year, or further testing is required. These tests are performed across employee contributions, matching, and after-tax contributions, and non-elective (employer, non-matching) contributions. ADP and ACP tests – The Actual Deferral Percentage (ADP) Test and the Actual Contribution Percentage (ACP) Test help to ensure that HCEs are not saving significantly more than the employee base. The tests compare the average deferral (traditional and Roth) and employer contribution (matching and after-tax) rates between HCEs and NHCEs. Top-heavy test – A plan is considered top-heavy when the total value of the Key employees’ plan accounts is greater than 60% of the total value of the plan assets. (The IRS defines a key employee as an officer making more than $200,000 (in 2022 and indexed each year after), an owner of more than 5% of the business, or an owner of more than 1% of the business who made more than $150,000 during the plan year.) 4. What if my plan doesn’t pass non-discrimination testing? You may be surprised to learn that it’s actually easier for large companies to pass the tests because they have many employees at varying income levels contributing to the plan. However, small and mid-size businesses may struggle to pass if they have a relatively high number of HCEs. If HCEs contribute a lot to the plan, but NHCEs don’t, there’s a chance that the 401(k) plan will not pass nondiscrimination testing. If your plan fails, you’ll need to fix the imbalance by returning 401(k) plan contributions to your HCEs or increasing contributions to your NHCEs. If you have to refund contributions, affected employees may fall behind on their retirement savings—and that money may be subject to state and federal taxes! Not to mention the fact that you may upset several top employees, which could have a detrimental impact on employee satisfaction and retention. 5. How can I avoid this headache-inducing situation? If you want to bypass compliance tests, consider a safe harbor 401(k) plan. A safe harbor plan is like a typical 401(k) plan except it requires you to: Contribute to the plan on your employees’ behalf, sometimes as an incentive for them to save in the plan Ensure the mandatory employer contribution vests immediately – rather than on a graded or cliff vesting schedule – so employees can always take these contributions with them when they leave To fulfill safe harbor requirements, you can elect one of the following employer contribution formulas: Basic safe harbor match—Employer matches 100% of employee contributions, up to 3% of their compensation, plus 50% of the next 2% of their compensation Enhanced safe harbor match—Employer matches 100% of employee contributions, up to 4% of their compensation. Non-elective contribution—Employer contributes at least 3% of each employee’s compensation, regardless of whether they make their own contributions. Want to contribute more? You absolutely can – the above percentages are only the minimum required of a safe harbor plan. 6. How can a safe harbor plan benefit my top earners? With a safe harbor 401(k) plan, you can ensure that your HCEs will be able to max out your retirement contributions (without the fear that contributions will be returned if the plan fails nondiscrimination testing). 7. What are the upsides (and downsides) of a safe harbor plan? Beyond ensuring your HCEs can max out their contributions, a safe harbor plan can help you: Attract and retain top talent—Offering your employees a matching or non-elective contribution is a powerful recruitment tool. Plus, an employer contribution is a great way to reward your current employees (and incentivize them to save for their future). Improve financial wellness—Studies show that financial stress impacts employees’ ability to focus on work. By helping your employees save for retirement, you help ease that burden and potentially improve company productivity and profitability. Save time and stress—Administering your 401(k) plan takes time—and it can become even more time-consuming and stressful if you’re worried that your plan may not pass nondiscrimination testing. Bypass certain tests altogether by electing a safe harbor 401(k). Reduce your taxable income—Like any employer contribution, safe harbor contributions are tax deductible! Plus, you can receive valuable tax credits to help offset the costs of your 401(k) plan. Of course, these benefits come with a cost; specifically the expense of increasing your overall payroll by 3% or more. So be sure to evaluate whether your company has the financial capacity to make employer contributions on an annual basis. 8. Are there other ways for HCEs to save for retirement? If you decide against a safe harbor plan, you can always encourage your HCEs to take advantage of other retirement-saving avenues, including: Health savings account (HSA) – If your company offers an HSA – typically available to those enrolled in a high-deductible health plan (HDHP) – individuals can contribute up to $3,650, families can contribute up to $7,300, and employees age 55 or older can contribute an additional $1,000 in 2022. The key benefits are: Contributions are tax free, earnings grow tax-free, and funds can be withdrawn tax-free anytime they’re used for qualified health care expenses. The HSA balance carries over and has the potential to grow unlike a “use-it-or-lose-it” FSA. Once employees turn 65, they can withdraw money from an HSA for any purpose – not just medical expenses – without penalty. However, they will have to pay income tax, so they may want to consider reserving it for medical expenses in retirement. Traditional IRA – If employees make after-tax contributions to a traditional IRA, all earnings and growth are tax-deferred. For 2022, the IRA contribution maximum is $6,000 and employees age 50 or older can make an additional $1,000 catch-up contribution. Roth IRA – HCEs may still be eligible to contribute to a Roth IRA, since Roth IRAs have their own separate income limits. But even if an employee’s income is too high to contribute to a Roth IRA, they may be able to convert a Traditional IRA into a Roth IRA via the “backdoor” IRA strategy. To do so, they would make non-deductible contributions to their Traditional IRA, open a Roth IRA, and perform a Roth IRA conversion. This is a more advanced strategy, so for more information, your employees should consult a financial advisor. Taxable Account – A taxable account is a great way to save beyond IRS limits. If employees are maxed out their 401(k) and IRA and want to keep saving, they can invest extra cash in a taxable account. Want to learn more? Betterment can help. Helping HCEs navigate retirement planning can be a challenge. If you’re considering a safe harbor plan or want to explore new ways to enhance retirement savings for all your employees, talk to Betterment today. Betterment assumes no responsibility or liability whatsoever for the content, accuracy, reliability or opinions expressed in a third-party website, to which a published article links (a “linked website”) and such linked websites are not monitored, investigated, or checked for accuracy or completeness by Betterment. It is your responsibility to evaluate the accuracy, reliability, timeliness and completeness of any information available on a linked website. All products, services and content obtained from a linked website are provided “as is” without warranty of any kind, express or implied, including, but not limited to, implied warranties of merchantability, fitness for a particular purpose, title, non-infringement, security, or accuracy. If Betterment has a relationship or affiliation with the author or content, it will note this in additional disclosure.

Related Companies and Controlled Groups: What this means for 401(k) plans When companies are related, how to administer 401(k) plans will depend on the exact relationship between companies and whether or not a controlled group is deemed to exist. Understanding Controlled Groups Under IRS Code sections 414(b) and (c), a controlled group is a group of companies that have shared ownership and, by meeting certain criteria, can combine their employee bases into one 401(k) plan. The controlled group rules were put into place to ensure that the plan provides proper coverage of employees and that it does not discriminate against non-highly compensated employees. Parent-Subsidiary Controlled Group: When one corporation owns at least an 80% interest in another corporation. The 80% ownership threshold is determined either by owning 80% of the total value of the corporation’s shares of stock or by owning enough stock to hold 80% of the voting power. Brother-Sister Controlled Group: When two or more entities are controlled by the same person or group of people, provided that the following criteria are met: Common ownership: Same five or fewer shareholders own at least an 80% controlling interest in each company. Identical ownership: The same five or fewer shareholders have an identical share of ownership among all companies which, in the aggregate, is more than 50%. In this first example below, a brother-sister controlled group exists between Company A and Company B since the three owners together own more than 80% of Companies A and B, and their identical ownership is 75%. Owner Company A Company B Identical Ownership Mike 15% 15% 15% Tory 40% 50% 40% Megan 40% 20% 20% Total 95% 85% 75% In this second example below, a brother-sister controlled group does not exist between Company A and Company B since the identical ownership is only 15%, well below the required 50% threshold. Owner Company A Company B Company C Identical Ownership Jon 100% 15% 15% 15% Sarah 0% 40% 50% 0% Chris 0% 40% 20% 0% Total 100% 95% 85% 15% Combined Controlled Group: More complicated controlled group structures might involve a parent/subsidiary relationship as well as one or more brother/sister relationship. Three or more companies may constitute a combined controlled group if each is a member of a parent-subsidiary group or brother-sister group and one is: A common parent company included in a parent-subsidiary group and Is also included in a brother-sister group of companies. In the below example, we see that Company A and B are in a brother-sister controlled group as the common ownership for both are at least 80% and the identical ownership is greater than 50%. However, since Company B also owns 100% of Company C, there’s a parent-subsidiary controlled group, which results in a combined controlled group situation. Owner Company A Company B Company C Identical Ownership Ariel 80% 85% 80% Company B 100% Controlled groups and 401(k) plans If related companies are determined to be part of a controlled group, then employers of that controlled group are considered a single employer for purposes of 401(k) plan administration. So even if multiple 401(k) plans exist among the employers within a single controlled group, they must meet the requirements as if they were a single-employer for purposes of: Determining eligibility Determining HCEs ADP & ACP testing Coverage testing Top heavy testing Compensation and contribution limits Vesting determination Maximum contribution and benefit limits Given the complexities associated with controlled group rules and how it may impact 401(k) plan administration, we encourage companies that have questions related to controlled groups to consult with their attorney or tax accountant, as Betterment is not a licensed tax advisor. Betterment assumes no responsibility or liability whatsoever for the content, accuracy, reliability or opinions expressed in a third-party website, to which a published article links (a “linked website”) and such linked websites are not monitored, investigated, or checked for accuracy or completeness by Betterment. It is your responsibility to evaluate the accuracy, reliability, timeliness and completeness of any information available on a linked website. All products, services and content obtained from a linked website are provided “as is” without warranty of any kind, express or implied, including, but not limited to, implied warranties of merchantability, fitness for a particular purpose, title, non-infringement, security, or accuracy. If Betterment has a relationship or affiliation with the author or content, it will note this in additional disclosure.

Plan Design Matters Thoughtful 401(k) plan design can help motivate even reluctant retirement savers to start investing for their future. Designing a 401(k) plan is like building a house. It takes care, attention, and the help of a few skilled professionals to create a plan that works for both you and your employees. In fact, thoughtful plan design can help motivate even reluctant retirement savers to start investing for their future - read more to learn how. How to tailor a 401(k) plan you and your employees will love As you embark on the 401(k) design process, there are many options to consider. In this article, we’ll take you through the most important choices so you can make well-informed decisions. Since certain choices may not be available on the various pricing models of any given provider, make sure you understand your options and the trade-offs you’re making. Let’s get started! 401(k) eligibility When would you like employees to be eligible to participate in the plan? You can opt to have employees become eligible: Immediately – as soon as they begin working for your company After a specific length of service – for example, a period of hours, months, or years of service It’s also customary to have an age requirement (for example, employees must be 18 years or older to participate in the plan). You may also want to consider an “employee class exclusion” to prevent part-time, seasonal, or temporary employees from participating in the plan. Once employees become eligible, they can immediately enroll – or, you can restrict enrollment to a monthly, quarterly, or semi-annual basis. If you have immediate 401(k) eligibility and enrollment, in theory, more employees could participate in the plan. However, if your company has a higher rate of turnover, you may want to consider adding service length requirements to alleviate the unnecessary administrative burden of having to maintain many small accounts of employees who are no longer with your organization. Enrollment Enrollment is another important feature to consider as you structure your plan. You may simply allow employees to enroll on their own, or you can add an automatic enrollment feature. Automatic enrollment (otherwise known as auto-enrollment) allows employers to automatically deduct elective deferrals from employees’ wages unless they elect not to contribute. With automatic enrollment, all employees are enrolled in the plan at a specific contribution rate when they become eligible to participate in the plan. Employees have the freedom to opt out and change their contribution rate and investments at any time. As you can imagine, automatic enrollment can have a significant impact on plan participation. In fact, according to research by The Defined Contribution Institutional Investment Association (DCIIA), automatic enrollment 401(k) plans have participation rates greater than 90%! That’s in stark contrast to the roughly 50% participation rate for plans in which employees must actively opt in. If you decide to elect automatic enrollment, consider your default contribution rate carefully. A 3% default contribution rate is still the most popular; however, more employers are electing higher default rates because research shows that opt-out rates don’t appreciably change even if the default rate is increased. Many financial experts recommend a retirement savings rate of 10% to 15%, so using a higher automatic enrollment default rate would give employees even more of a head start. Auto-escalation Auto-escalation is an important feature to look out for as you design your plan. It enables employees to increase their contribution rate over time as a way to increase their savings. With auto-escalation, eligible employees will automatically have their contribution rate increased by 1% every year until they reach a maximum cap of 15%. Employees can also choose to set their own contribution rate at any time, at which point they will no longer be enrolled in the auto-escalation feature. For example, if an employee is auto-enrolled at 6% with a 1% auto-escalation rate, and they choose to change their contribution rate to 8%, they will no longer be subject to the 1% increase every year. Compensation You’re permitted to exclude certain types of compensation for plan purposes, including compensation earned prior to plan entry and fringe benefits for purposes of compliance testing and allocating employer contributions. You may choose to define your compensation as: W2 (box 1 wages) plus deferrals – Total taxable wages, tips, prizes, and other compensation 3401(a) wages – All wages taken into account for federal tax withholding purposes, plus the required additions to W-2 wages listed above Section 415 Safe Harbor – All compensation received from the employer which is includible in gross income Employer contributions Want to encourage employees to enroll in the plan? Free money is a great place to start! That’s why more employers are offering profit sharing or matching contributions. Some common employer contributions are: Safe harbor contributions – With the added bonus of being able to avoid certain time-consuming compliance tests, safe harbor contributions often follow one of these formulas: Basic safe harbor match—Employer matches 100% of employee contributions, up to 3% of their compensation, plus 50% of the next 2% of their compensation. Enhanced safe harbor match—The most common employer match formula is 100% of employee contributions, up to 4% of their compensation, but this could vary. Non-elective contribution—Employer contributes at least 3% of each employee’s compensation, regardless of whether they make their own contributions. Discretionary matching contributions – You decide what percentage of employee 401(k) deferrals to match and the maximum percentage of pay to match. For example, you could elect to match 50% of contributions on up to 6% of compensation. One advantage of having a discretionary matching contribution is that you retain the flexibility to adjust the matching rate as your business needs change. Non-elective contributions – Each pay period, you have the option of contributing to your employees’ 401(k) accounts, regardless of whether they contribute. For example, you could make a profit sharing contribution (one type of non-elective contribution) at the end of the year as a percentage of employees’ salaries or as a lump-sum amount. In addition to helping your employees build their retirement nest eggs, employer contributions are also tax deductible (up to 25% of total eligible compensation), so it may cost less than you think. Plus, we believe offering an employer contribution can play a key role in recruiting and retaining top employees. 401(k) vesting If you elect to make an employer contribution, you also need to decide on a vesting schedule (an employee’s own contributions are always 100% vested). Note that all employer contributions made as part of a safe harbor plan are immediately and 100% vested (although QACA plans can be subject to a 2-year cliff). The three main vesting schedules are: Immediate – Employees are immediately vested in (or own) 100% of employer contributions as soon as they receive them. Graded – Vesting takes place in a gradual manner. For example, a six-year graded schedule could have employees vest at a rate of 20% a year until they are fully vested. Cliff – The entire employer contribution becomes 100% vested all at once, after a specific period of time. For example, if you had a three-year cliff vesting schedule and an employee left after two years, they would not be able to take any of the employer contributions (only their own). Like your eligibility and enrollment decisions, vesting can also have an impact on employee participation. Immediate vesting may give employees an added incentive to participate in the plan. On the other hand, a longer vesting schedule could encourage employees to remain at your company for a longer time. Service counting method If you decide to use length of service to determine your eligibility and vesting schedules, you must also decide how to measure it. Typically, you may use: Elapsed time – Period of service as long as employee is employed at the end of period Actual hours – Actual hours worked. With this method, you’ll need to track and report employee hours Actual hours/equivalency – A formula that credits employees with set number of hours per pay period (for example, monthly = 190 hours) 401(k) withdrawals and loans Naturally, there will be times when your employees need to withdraw money from their retirement accounts. Your plan design will have rules outlining the withdrawal parameters for: Termination In-service withdrawals (at attainment of age 59 ½; rollovers at any time) Hardships Qualified Domestic Relations Orders (QDROs) Required Minimum Distributions (RMDs) Plus, you’ll have to decide whether to allow participants to take 401(k) plan loans (and the maximum amount of the loan). While loans have the potential to derail employees’ retirement dreams, having a loan provision means employees can access their money if they need it and employees can pay themselves back plus interest. If employees are reluctant to participate because they’re afraid their savings will be “locked up,” then a loan provision can help alleviate that fear. Investment options When it comes to investment methodology, there are many strategies to consider. Your plan provider can help guide you through the choices and associated fees. For example, at Betterment, we believe that our expert-built ETF portfolios offer investors significant diversification and flexibility at a low cost. Plus, we offer ETFs in conjunction with personalized advice to help today’s retirement savers pursue their goals. Get help from the experts Your 401(k) plan provider can walk you through your plan design choices and help you tailor a plan that works for your company and your employees. Once you’ve settled on your plan design, you will need to codify those features in the form of a formal plan document to govern your 401(k) plan. At Betterment, we draft the plan document for you and provide it to you for review and final approval. Your business is likely to evolve—and your plan design can evolve, too. Drastic increase in profits? Consider adding an employer match or profit sharing contribution to share the wealth. Plan participation stagnating? Consider adding an automatic enrollment feature to get more employees involved. Employees concerned about access to their money in an uncertain world? Consider adding a 401(k) loan feature. Need a little help figuring out your plan design? Talk to Betterment. Our experts make it easy for you to offer your employees a better 401(k) —at one of the lowest costs in the industry.

ESG Investments in 401(k) Plans The DOL proposal provides clarity with ESG investing. In the beginning of 2021, the Department of Labor (DOL) released a “final rule” entitled “Financial Factors in Selecting Plan Investments,” pertaining to ESG (environmental, social, governance) investments within a 401(k) plan. In March 2021, the DOL under the Biden administration stated that they were not going to enforce the previous administration’s rule until they had completed their own review. Most recently, the Biden DOL released its own proposal, reworking parts of the rule to be more favorable to the inclusion of ESG investments within 401(k)s and clarifying areas that had a chilling effect on fiduciaries performing their responsibilities. So what’s changed? 2020 Rule New Proposal Evaluating investments Investment choices must be based on “pecuniary” factors, which include time horizon, diversification, risk, and return. Clarifies that ESG factors are permissible and are financially material in the consideration of investments. Qualified default investment alternative (QDIA) Cannot select investment based on one or more non-pecuniary factors. ESG factors are permissible, allowing the possibility of wider adoption of ESG funds and portfolios. Tie-breaker test (when deciding between investments) Non-financial factors such as ESG are permissible. However, they must have detailed documentation. Permitted to select investments based on “collateral benefits” such as ESG. Where collateral benefits form the basis for investment choice, disclosure of collateral benefits required. Detailed tie-breaker documentation not required. Proxy voting Fiduciaries are not required to vote every proxy or exercise every shareholder right. Revised language stresses the importance of proxy voting in line with fiduciary obligations. Special monitoring for proxy voting when outsourcing responsibilities. Proxy voting activities must be recorded. Additional special monitoring is not required. Removal of record keeping of proxy activities. Safe harbors: a fiduciary can choose not to vote proxy if (a) the proposal is related to business activities or investment value (b) percentage ownership or the proposal being voted on is not significant enough to materially impact. Removal of safe harbors. Voting to further political or social causes “that have no connection to enhancing the economic value of the plan's investment” through proxy voting or shareholder activism is a violation. Opens the door to ESG factors when voting proxies as under the proposed rule that they are economically material. Why is this important? Under the proposal, the DOL clarifies that “climate change and other ESG factors can be financially material and when they are, considering them will inevitably lead to better long-term risk-adjusted returns, protecting the retirement savings of America’s workers.” Under the previous rule, many ESG factors would not count as a “pecuniary” factor. However, in actuality ESG factors have a high likelihood of impacting financial performance in the long run. For example, climate change can shift environmental conditions, force companies to transition and adapt to these shifts, lead to disruptions in business cycles and new innovations, and ultimately be a material financial risk over time when a company declines from failing to adapt. For retirement plans, the DOL’s revised proposal acknowledges that ESG risks could be important to consider when reviewing investments for strategic portfolio construction. Driving impact through ESG investing and proxy voting works. We’ve seen this concept in action with Engine No. 1 winning three ExxonMobil board seats in a six month long proxy battle. The change in having three new board members that are conscious of climate change and favor transitioning away from fossil fuels will benefit the company in the long term as renewable energy grows in prominence. After its successful proxy battle with Exxon, Engine No. 1 reported cordial discussions with representatives of Chevron Corp. regarding the company’s emissions reduction strategy, and also has reportedly built a stake in General Motors and expressed support for GM’s management actions relating to increased electric vehicle production and GM’s long-term strategy. Ernst & Young also published data showing an increasing trend of how more Fortune 100 companies are incorporating ESG initiatives into proxy statements. For example, 91% disclosed they are incorporating workplace diversity into their initiatives in 2021 versus 61% in 2020. Demand for ESG products will continue We believe demand for ESG-focused investing will continue to grow, and it is important that regulations are clarified to accommodate this trend. Bloomberg projects that global assets in ESG will exceed $50 trillion by 2025, which is significant as it will represent a third of projected global assets under management. In the US, $17 trillion is invested in ESG assets. Trends within ESG ETFs tell the same story where fund flows this year have increased by more than 1000% compared to flows seen just three years ago. How Betterment incorporates ESG investing in 401(k) plans At Betterment, we believe investing through an ESG lens matters, and can be important to 401(k) participants investing on a longer time horizon. We’ve found many ways to thoughtfully weave ESG investing into our portfolio strategies. Betterment has a 10+ years track record of constructing globally diversified portfolios, along with a history of implementing ESG investment strategies in 401(k)s using our Socially Responsible Investing (SRI) portfolios. The SRI portfolios come with three different focuses: Broad Impact, Social Impact, and Climate Impact. Each of these portfolios allow our clients to choose how they want to invest to best align their portfolio with their values. Perceptions of higher fees in the ESG investment space has been a misconception that has historically posed an obstacle to the adoption of pro-ESG regulation. Expense ratios of ESG ETFs have declined to 0.20%, which is low compared to the 0.47% average expense ratio of all ETFs in the US. Within Betterment’s SRI portfolios, and depending on the investor’s overall portfolio allocation to stocks relative to bonds, the asset weighted expense ratios of the Broad Impact, Social, and Climate portfolios range from 0.12-0.18%, 0.13-0.20%, 0.13-0.20% respectively. Another misconception is that in order to adopt ESG investing, you have to sacrifice performance goals. As a 3(38) investment fiduciary, Betterment reviews fund selection on an ongoing basis to ensure we’ve performed our due diligence in selecting investments suitable for participants' desired investing objectives. To determine if there were in fact any financial tradeoffs associated with an SRI portfolio strategy relative to the Betterment Core, we examined evidence based on historical returns. When adjusting for the stock allocation level and Betterment fees, we found that: There were no material performance differences. The portfolios were highly correlated overall. In certain time periods the SRI portfolios outperformed the Betterment Core portfolio. Another example of how we’ve incorporated ESG impact investing is through the addition of the Engine No. 1 Transform 500 ETF (VOTE) into all three of our SRI portfolio strategies in 2021. With VOTE ETF, you can still maintain exposure to the 500 largest companies within the US at an inexpensive expense ratio of 0.05%. That may seem counterintuitive since it mirrors owning the S&P 500 Index, however the magic happens behind the scenes as the fund manager uses share ownership to vote proxies in favor of ESG initiatives. This is a new form of shareholder activism and another way performance goals, exposure, and fees do not have to be sacrificed to make a difference. What’s next? We are hopeful that ease of interpretation with this rule may allow wider adoption of ESG products as investment options and may lead to greater incorporation of ESG factors in the decision making process as we do believe they are material. This has been a focus of Betterment’s as we seek to remain ahead of the trend with our product solutions. We will continue to monitor ongoing developments and keep you informed. Note: Higher bond allocations in your portfolio decrease the percentage attributable to socially responsible ETFs.

How Does a Multiple Employer Plan Compare to a Single Employer 401(k) Plan? Are MEPs and PEPs the new solution for workplace retirement savings or should I pick my own 401(k) plan? Multiple employer plans (MEPs) have been around for many years, but the rules governing these types of retirement plans limit their availability to many employers. In an effort to help more small and mid-sized companies offer retirement savings plans to their employees, the SECURE Act ushered in new changes so that, beginning in 2021, any business can join a new type of MEP, called a Pooled Employer Plan (PEP). Because of this new development, MEPs and PEPs have become buzzwords in the industry and no doubt you’ll see advertisements touting the benefits of these one-size-fits-all type plans. But are they really the magic bullet policymakers are hoping will solve the “retirement savings crisis”? That remains to be determined, but for many employers, sponsoring their own 401(k) plan with the right plan provider is the best way to ensure their goals for a retirement savings plan are met. What is a MEP? A multiple employer plan or MEP is a retirement plan, often structured as a 401(k) plan, that is established and administered by an “MEP organizer.” The MEP organizer makes the plan available to many different employers. If the MEP meets certain requirements set forth in the tax laws and ERISA (Employee Retirement Income Security Act), it will be treated as a single plan managed by the organizer and not as a series of separate plans administered by each participating employer. The MEP organizer serves as plan fiduciary and typically assumes both administrative and investment management responsibilities for all employers participating in the MEP. An MEP is viewed by the Department of Labor (DOL) as a single plan eligible to file one Form 5500 only if the employers participating in the MEP are part of the same trade or association or are located in the same geographical area. There must be some commonality between the participating employers besides just participating in the MEP. A Professional Employer Organization (PEO) may also sponsor an MEP for its employer clients. What is a PEP? The rules limiting the benefits of an MEP to employers with commonality limited the usefulness of MEPs for many small businesses. To allow broader participation in MEPs, the SECURE Act added a new type of MEP, called a Pooled Employer Plan or PEP, effective for plan years beginning in 2021. A PEP is a 401(k) plan that will operate much like a MEP with a plan organizer and multiple participating employers, but there are a few important differences. Any employer can join a PEP; the businesses do not have to have any common link for the PEP to be considered a single plan. But the PEP must be sponsored by a “Pooled Plan Provider” (PPP) that has registered with the DOL and IRS. The Pooled Plan Provider must be designated in the PEP plan document as the named fiduciary and the ERISA 3(16) plan administrator. This service provider is also responsible for ensuring the PEP meets the requirements of ERISA and the tax code, including ensuring participant disclosures are provided and nondiscrimination testing is performed. The PPP must also obtain a fidelity bond and ensure that any other entities acting as fiduciary to the PEP are bonded. What are the benefits of participating in a MEP or PEP? Small businesses may refrain from adopting a retirement plan for their employees because of the administrative burdens, fiduciary liability, and cost associated with workplace plans. MEPs have been identified in recent years as a way to address these concerns for employers and potentially increase access to workplace retirement plans for employees of small and mid-size businesses. The MEP structure can alleviate much of the administrative and fiduciary burdens for participating employers, and potentially reduce costs. Reduced fiduciary responsibility – The MEP organizer or the PPP takes on fiduciary responsibility for managing the plan and for selecting and monitoring service providers. This generally includes selecting investments that will be offered in the plan. Reduced administrative responsibility – The MEP organizer or the PPP is responsible for day-to-day administration and complying with all applicable rules and regulations for plan operations. Investment pricing – A MEP/PEP arrangement pools plan assets of all participating employers, which may allow the MEP/PEP to obtain better pricing on investments. Reduced plan expenses – MEPs/PEPs allow small businesses to benefit from economies of scale by sharing the expenses for plan documents, general plan administration, and one Form 5500. Because of these benefits, interest in MEPs has grown over the years, leading to the rule changes that open the MEP opportunity to all employers through a PEP. How do MEPs & PEPs Differ from a Single 401(k) Plan? Many of the responsibilities associated with managing a retirement plan that can challenge plan sponsors are taken on by the MEP organizer or the PPP. This third party is responsible for making almost all the decisions related to managing the plan, hiring and monitoring service providers, and overseeing the plan’s investments and operations. The MEP/PEP entity must perform these services on behalf of all participating employers and will be held to the high fiduciary standards of ERISA for these duties. Once the employer has prudently selected the MEP/PEP entity, the employer is relieved of the day-to-day operational oversight and investment management. However, this transfer of responsibilities also means a transfer of control over key decisions regarding the plan. Conversely, when an employer establishes its own 401(k) plan for its employees, the employer retains many of these operational and investment responsibilities, which the employer typically fulfills with the support of service providers. The employer can design the plan based solely on their goals and objectives for the plan and their employees’ needs. The flexibility retained by an employer adopting a single 401(k) plan includes: Selecting the plan design features that fit their employees’ needs Picking the service provider that will assist them in operating the plan and provide relevant education and guidance to their employees Choosing the menu of investments that will be offered to participants in the plan or engaging an investment advisor to manage or guide investment selection Deciding whether to offer personalized advice to employees When Might a Single 401(k) Plan Might Be Better? While the shared expenses and reduced responsibilities of participating in a MEP/PEP can be attractive to small and midsize employers, sometimes what one employer sees as a benefit, another employer sees as a disadvantage. For example, because the MEP/PEP entity is operating one plan for many employers, the plan may be designed with the features that will be most widely accepted by most employers. There is typically little customization available in order to keep plan operations efficient (and cost effective) for the MEP/PEP entity. Participating employers generally have no control over service providers, plan design, or the participant experience. Additionally, although the structure of a MEP/PEP is meant to reduce administrative and investment expenses for participating employers, it remains to be seen if the cost of these plans will be competitive with the low-cost 401(k) plans available today without compromising on the quality and breadth of services. PEPs will open up the multiple employer plan market to all employers for the first time ever. And there are many financial organizations and service providers preparing to capitalize on this new solution by launching PEP products. Although the DOL has provided some guidance, the industry is still awaiting additional guidance on a number of critical elements necessary for building the PEP plan product, including plan documents, acceptable compensation arrangements for service and investment providers, administrative responsibilities for PPPs, and special Form 5500 rules. With so many unknowns yet in the PEP market, it’s difficult to predict whether this new type of multiple employer plan will hit the mark for small business owners. Employers can benefit from the simplicity of a single service provider solution and receive professional fiduciary and administrative support right now with a 401(k) solution designed specifically for small and midsized plans. Ready for the right 401(k) solution? Betterment at Work offers an all-in-one dashboard for employers that aims to simplify plan administration at one of the lowest costs in the industry. Our guided onboarding, dedicated customer support team, and expert-built portfolios can help you deliver a 401(k) plan that works both for your organization and your employees.

The Importance and Benefits of Offering Employer Match Some employees resist saving because they feel retirement is too far away, can’t afford it, or can’t grasp the benefit. You can help change that mentality by offering a 401(k) employer match. Beyond being an attractive employee benefit, a 401(k) plan can act as a catalyst for employees at all career stages to save for retirement. Some employees, however, will resist saving because they feel retirement is too far away, or can’t afford it, or can’t make room in their budget (and current spending levels). However, as a 401(k) plan sponsor, you can help change that mentality by offering a 401(k) employer matching contribution. What is a 401(k) employer matching contribution? With an employer match, a portion or all of an employee’s 401(k) plan contribution will be “matched” by the employer. Common matching formulas include: Dollar-for-Dollar Match: Carla works for ABC Company, which runs payroll on a semi-monthly basis (two times a month = 24 pay periods a year). Her gross pay every period is $2,000. She has decided to defer 4% of her pre-tax pay every pay period, or $80 (4% x $2,000). The ABC Company 401(k) plan generously offers a dollar-for-dollar match up to 4% of compensation deferred. With each payroll, $80 of Carla’s pay goes to her 401(k) account on a pre-tax basis, and ABC Company also makes an $80 matching contribution to Carla’s 401(k) account. At a 4% contribution rate, Carla is maximizing the employer contribution amount. If she reduces her contribution to 3%, her company matching contribution would also drop to 3%; but if she increases her contribution to 6%, the formula dictates that her employer would only contribute 4%. Partial Match (simple): Let’s take the same scenario as above, but ABC Company 401(k) plan matches 50% on the first 6% of compensation deferred. This means that it will match half of the 401(k) contributions. If Carla contributes $80 to the 401(k) plan, ABC Company will contribute $40 on top of her contribution as the match. Tiered Match: By applying different percentages to multiple tiers, employers can encourage employees to contribute to the plan while controlling their costs. For example, ABC Company could match 100% of deferrals up to 3% of compensation and 50% on the next 3% of deferrals. Carla contributes 4% of her pay of $2,000, which is $80 per pay period. Based on their formula, ABC Company will match her dollar-for-dollar on 3% of her contribution ($60 = 3% x $2,000), and 50 cents on the dollar on the last 1% of her contribution for a total matching contribution of $70 or 3.5%. The plan’s matching formula is chosen by the company and specified in the plan document or may be defined as discretionary, in which case the employer may determine not only whether or not to make a matching contribution in any given year, but also what formula to use. Is there a limit to how much an employer can match? The IRS limits annual 401(k) contributions, and these limits change from year to year. It’s also important to note that the IRS caps annual compensation that’s eligible to be matched. Potential Benefits of Providing an Employer Match Attract talent: Offering a 401(k) is a great way to set your company apart from the competition, and a matching contribution sweetens the deal! A Betterment at Work study found that 68 percent of respondents would prioritize having better financial wellness benefits above an extra week of vacation! Better 401(k) plan participation: Unlike other types of employer contributions, a matching contribution requires employees to contribute their own money to the plan. In other words, the existence of the match drives plan participation up (not contributing is like leaving money on the table), encouraging employee engagement and increasing the likelihood of having your plan pass certain compliance tests. Financial well-being of employees: A matching contribution shows employees that you care about their financial well-being and are willing to make an investment in their future. The additional funds can help employees reach their retirement savings goal. Improved retention: The match is essentially “free money” that can be considered part of an employee’s compensation, which can be hard to give up. And by applying a vesting schedule to the employer match, you can incentivize employees to stay longer with your company to gain the full benefits of the 401(k) plan. Employer tax deduction: matching contributions are tax deductible, which means you can deduct them from your company’s income so long as they don’t exceed IRS limits. Offering a 401(k) plan is already a huge step forward in helping your employees save for their retirement. Providing a 401(k) matching contribution enhances that benefit for both your employees and your organization. Ready for a better 401(k) solution? Whether you’re considering a matching contribution or not, Betterment is here to help. We offer an all-in-one dashboard that seeks to simplify plan administration, at one of the lowest costs in the industry., Our dedicated onboarding team, and support staff are here to help you along the way. 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Helping Employees Set Up an Emergency Fund Employers are looking for ways to help their employees save for unexpected financial emergencies. Betterment’s 401(k) platform can help. Your water heater fails. Your car breaks down on the side of the road. Your spouse loses their job because of a global pandemic. Life is filled with challenges, and some are more stressful and expensive than others. As a business owner, you’ve likely witnessed firsthand how financial emergencies can impact your employees. Not only does the stress affect employees’ personal lives, it can also affect their work performance, attendance, and focus. That’s why an emergency fund —with enough money to cover at least a few months of expenses—is such an important part of your employees’ overall financial plan. However, many people lack this critical safety net. Rainy day funds are running dry According to research by the Federal Reserve and reported on by the Employee Benefit Research Institute (EBRI), less than 25% of working families had liquid savings of more than three months of their family income. And even when asked if they have 75% of funds needed for three months, that jumps to just over one quarter. When faced with an emergency, employees without an emergency fund may turn to credit cards, take a payday loan, or even raid their retirement savings—triggering early withdrawal penalties and derailing their retirement savings progress. Having a solid emergency fund may help prevent employees from spiraling into a difficult financial predicament with wide-reaching implications. Emergency fund 101 So, what should your employees consider when setting up an emergency fund? At Betterment, we recommend: Saving at least three to four months of expenses—If employees have an emergency fund, they’ll feel more confident focusing on other important goals like retirement or home ownership. Investing emergency fund money—By investing their money—not socking it away in a low-interest savings account—employees don’t run the risk of losing buying power over time because of inflation. Making it automatic—Setting up a regular, automatic deposit can help employees stick to their savings plan because it reduces the effort required to set aside money in the first place. All of this is summarized for employees here: How to Build an Emergency Fund. Helping employees save for today—and someday Some employees may feel like they have to choose between building their emergency fund and saving in their workplace retirement plan. But it doesn’t have to be a choice. With the right 401(k) plan provider, your employees can save for retirement and build an emergency fund at the same time. For example, the Betterment platform is more than just a 401(k) in that it provides: Quick and easy emergency saving fund set-up Betterment makes it easy to establish an emergency savings fund—helping ensure employees don’t need to dip into their 401(k) when faced with unexpected financial difficulties. If your employees aren’t sure how much to save, Betterment can calculate it for them using their gross income, zip code, and research from the American Economic Association and the National Bureau of Economic Research.Betterment will also estimate how much employees need to save to build the emergency fund they want to reach their target amount in their desired time horizon. Using our goals forecaster, employees can model how much they need to save each month to reach their emergency fund goal and view different what-if scenarios that take into account monthly savings, time horizons, and target amounts. Linked accounts for big picture planning Our easy-to-use online platform links employee savings accounts, outside investments, IRAs—even spousal/partner assets—to create a real-time snapshot of their finances, making it easy for them to see the big picture. That means that in a single, holistic view, employees can track both their 401(k) plan account and their emergency fund. Personalized advice to help employees save for today (and someday) By offering personalized advice, Betterment can help your employees make strides toward their long- and short-term financial goals. Ready for a better way to help your employees prepare for the inevitable—and the unexpected? Talk to Betterment today.

Understanding 401(k) Annual Compliance Testing These yearly required tests are meant to ensure everyone is benefiting from your 401(k) plan. If your company has a 401(k) plan—or if you’re considering starting one in the future—you may have heard about annual compliance testing, also known as nondiscrimination testing. But what is it really? And how can you help your plan pass these important compliance tests? Read on for our explanation. What is annual compliance testing? Mandated by ERISA, annual compliance testing helps ensure that 401(k) plans benefit all employees—not just business owners or highly compensated employees. Because the government provides significant tax benefits through 401(k) plans, it wants to ensure that these perks don’t disproportionately favor high earners. We’ll dive deeper into nondiscrimination testing, but let’s first discuss an important component of 401(k) compliance: contribution limits. What contribution limits do I need to know about? Because of the tax advantages given to 401(k) plan contributions, the IRS puts a limit on the amount that employers and employees can contribute. Here’s a quick overview: Limit What is it? Notes for 2023 plan year Employee contribution limits (“402g”) Limits the amount a participant may contribute to the 401(k) plan. The personal limit is based on the calendar year.1 Note that traditional (pre-tax) and Roth (post-tax) contributions are added together (there aren’t separate limits for each). $22,500 is the maximum amount participants may contribute to their 401(k) plan for 2023. Participants age 50 or older during the year may defer an additional $7,500 in “catch-up” contributions if permitted by the plan. Total contribution limit (“415”) Limits the total contributions allocated to an eligible participant for the year. This includes employee contributions, all employer contributions and forfeiture allocations. Total employee and employer contributions cannot exceed total employee compensation for the year. $66,0002 plus up to $7,500 in catch-up contributions (if permitted by the plan) for 2023. Cannot exceed total compensation. Employer contribution limit Employers’ total contributions (excluding employee deferrals) may not exceed 25% of eligible compensation for the plan year. N/A This limit is an IRS imposed limit based on the calendar year. Plans that use a ‘plan year’ not ending December 31st base their allocation limit on the year in which the plan year ends. This is different from the compensation limits, which are based on the start of the plan year. Adjusted annually; see most recent Cost of Living Adjustments table here. What is nondiscrimination testing designed to achieve? Essentially, nondiscrimination testing has three main goals: To measure employee retirement plan participation levels to ensure that the plan isn’t “discriminating” against lower-income employees. To ensure that people of all income levels have equal access to—and awareness of—the company’s retirement plan. To encourage employers to be good stewards of their employees’ futures by making any necessary adjustments to level the playing field (such as matching employees’ contributions) Where do I begin? Before you embark on annual compliance testing, you’ll need to categorize your employees by income level and employee status. Here are the main categories (and acronyms): Highly compensated employee (HCE)—According to the IRS, an employee who meets one or more of the following criteria: Prior (lookback) year compensation—For plan years ending in 2023, earned over $135,000 in the preceding plan year; some plans may limit this to the top 20% of earners (known as the top-paid group election), which would be outlined in your plan document; or Ownership in current or prior year—Owns more than 5% of (1) outstanding corporate stock, (2) voting power across corporate stock, or (3) capital or profits of an entity not considered a corporation Non-highly compensated employee (NHCE)—Someone who does not meet the above criteria. Key employee—According to the IRS, an employee who meets one or more of the following criteria during the plan year: Ownership over 5%—Owns more than 5% of (1) outstanding corporate stock, (2) voting power across corporate stock, or (3) capital or profits of an entity not considered a corporation. Ownership over 1%—Owns more than 1% of the stock, voting power, capital, or profits, and earned more than $150,000. Officer—An officer of the employer who earned more than $215,000 for 2023; this may be limited to the lesser of 50 officers or the greater of 3 or 10% of the employee count. Non-key employee—Someone who does not meet the above criteria. What are the tests that need to be performed? Below are the tests typically performed for 401(k) plans. Betterment will perform each of these tests on behalf of your plan and inform you of the results. 1. 410(b) Coverage Tests—These tests determine the ratios of employees eligible for and benefitting from the plan to show that the plan fairly covers your employee base. Specifically, these tests review the ratio of HCEs benefitting from the plan against the ratio of NHCEs benefitting from the plan. Typically, the NHCE percentage benefitting must be at least 70% or 0.7 times the percentage of HCEs considered benefitting for the year, or further testing is required. These annual tests are performed across different contribution types: employee contributions, employer matching contributions, after-tax contributions, and non-elective (employer, non-matching) contributions. 2. Actual deferral percentage (ADP) test—Compares the average salary deferral of HCEs to that of non-highly compensated employees (NHCEs). This test includes pre-tax and Roth deferrals, but not catch-up contributions. Essentially, it measures the level of engagement of HCEs vs. NHCEs to make sure that high income earners aren’t saving at a significantly higher rate than the rest of the employee base. Specifically, two percentages are calculated: HCE ADP—The average deferral rate (ADR) for each HCE is calculated by dividing the employee’s elective deferrals by their salary. The HCE ADP is calculated by averaging the ADR for all eligible HCEs (even those who chose not to defer). NHCE ADP—The average deferral rate (ADR) for each NHCE is calculated by dividing the employee’s elective deferrals by their salary. The NHCE ADP is calculated by averaging the ADR for all eligible NHCEs (even those who chose not to defer). The following table shows how the IRS limits the disparity between HCE and NHCE average contribution rates. For example, if the NHCEs contributed 3%, the HCEs can only defer 5% (or less) on average. NHCE ADP HCE ADP 2% or less → NHCE% x 2 2-8% → NHCE% + 2 more than 8% → NHCE% x 1.25 3. Actual contribution percentage (ACP) test—Compares the average employer contributions received by HCEs and NHCEs. (So this test is only required if you make employer contributions.) Conveniently, the calculations and breakdowns are the same as with the ADP test, but the average contribution rate calculation includes both employer matching contributions and after-tax contributions. 4. Top-heavy determination—Evaluates whether or not the total value of the plan accounts of “key employees” is more than 60% of the value of all plan assets. Simply put, it analyzes the accrued benefits between two groups: Key employees and non-Key employees. A plan is considered top-heavy when the total value (account balance with adjustments related to rollovers, terminated accounts, and a five-year lookback of distributions) of the Key employees’ plan accounts is greater than 60% of the total value (also adjusted as noted above) of the plan assets, as of the end of the prior plan year. (Exception: The first plan year is determined based on the last day of that year). If the plan is considered top-heavy for the year, employers must make a contribution to non-key employees. The top-heavy minimum contribution is the lesser of 3% of compensation or the highest percentage contributed for key employees. However, this can be reduced or avoided if no key employee makes or receives contributions for the year (including forfeiture allocations). What happens if my plan fails these tests? If your plan fails the ADP and ACP tests, you’ll need to fix the imbalance by returning 401(k) plan contributions to your HCEs or by making additional employer contributions to your NHCEs. If you have to refund contributions, that money may be subject to state and federal taxes. Plus, if you don’t correct the issue in a timely manner, there could also be a 10% penalty fee and other serious ramifications. Why is it common to fail testing? Small and mid-size businesses may struggle to pass if they have a relatively high number of HCEs. If HCEs contribute a lot to the plan, but non-highly compensated employees (NHCEs) don’t, there’s a chance that the 401(k) plan will not pass nondiscrimination testing. It’s actually easier for large companies to pass the tests because they have many employees at varying income levels contributing to the plan. How can I help my plan pass the tests? It pays to prepare for nondiscrimination testing. Here are a few tips that can make a difference: Add automatic enrollment —By adding an auto-enrollment feature to your 401(k) plan, you can automatically deduct elective deferrals from your employees’ wages unless they opt out. It’s a simple way to boost participation rates and help your employees start saving. In fact, the government is getting more behind auto-enrollment; SECURE 2.0 mandates plans that launched after Dec. 29, 2022 add automatic enrollment to the plan by Jan. 1, 2025. Add a Safe Harbor provision to your 401(k) plan—Safe Harbor plan design typically makes compliance testing easier to pass. Make it easy to enroll in your plan—Is your 401(k) plan enrollment process confusing and cumbersome? If so, it might be stopping employees from enrolling. Consider partnering with a tech-savvy provider like Betterment that can help your employees enroll quickly and easily—and support them on every step of their retirement saving journey. Learn more now. Encourage your employees to save—Whether you send emails or host employee meetings, it’s important to get the word out about saving for retirement through the plan. That’s because the more NHCEs that participate, the better chance you have of passing the nondiscrimination tests. (Plus, you’re helping your team save for their future.) Add automatic escalation - By adding automatic escalation, you can ensure that participants who are automatically enrolled in the plan continue to increase their deferral rate by 1% annually until a cap is reached (generally 15%). It’s a great way to increase your employees retirement savings and to engage them in the plan. How can Betterment help? Nondiscrimination testing and many other aspects of 401(k) plan administration can be complex. That’s why we do everything in our power to help make it easier for you as a plan sponsor. We help with year-end compliance testing, including ADP/ACP testing, top-heavy testing, annual additions testing, deferral limit testing, and coverage testing. With our intuitive online platform, you can better manage your plan and get the support you need along the way. Ready to learn more? Let's talk. Any links provided to other websites are offered as a matter of convenience and are not intended to imply that Betterment or its authors endorse, sponsor, promote, and/or are affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise. The information contained in this article is meant to be informational only and does not constitute investment or tax advice.

What Employers Should Know About Timing of 401(k) Contributions One of the most important aspects of plan administration is making sure money is deposited in a timely manner—to ensure that employer contributions are tax-deductible and employee contributions are in compliance. Timing of employee 401(k) contributions (including loan repayments) When must employee contributions and loan repayments be withheld from payroll? This is a top audit issue for 401(k) plans, and requires a consistent approach by all team members handling payroll submission. If a plan is considered a ‘small plan filer’ (typically under 100 eligible employees), the Department of Labor is more lenient and provides a 7-business day ‘safe harbor’ allowing employee contributions and loan repayments to be submitted within 7 business days of the pay date for which they were deducted. If a plan is larger (>100 eligible employees), the safe harbor does not apply, and the timeliness is based on the earliest date a plan sponsor can reasonably segregate employee contributions from company assets. Historically, plans leaned on the outer bounds of the requirement (by the 15th business day of the month following the date of the deduction effective date), but today with online submissions and funding via ACH, a company would generally be hard-pressed to show that any deposit beyond a few days is considered reasonable. To ensure timely deposits, it’s imperative for plan sponsors to review their internal processes regularly. All relevant team members -- including those who may have to handle the process infrequently due to vacations or otherwise -- understand the 401(k) deposit process completely and have the necessary access. I am a self-employed business owner with income determined after year-end. When must my 401(k) contributions be submitted to be considered timely? If an owner or partner of a company does not receive a W-2 from the business, and determines their self-employment income after year-end, their 401(k) contribution should be made as soon as possible after their net income is determined, but certainly no later than the individual tax filing deadline. Their 401(k) election should be made (electronically or in writing) by the end of the year reflecting a percentage of their net income from self employment. Note that if they elect to make a flat dollar 401(k) contribution, and their net income is expected to exceed that amount, the deposit is due no later than the end of the year. Timing of employer 401(k) contributions We calculate and fund our match / safe harbor contributions every pay period. How quickly must those be deposited? Generally, there’s no timing requirement throughout the year for employer matching or safe harbor contributions. The employer may choose to pre-fund these amounts every pay period, enabling employees to see the value provided throughout the year and to benefit from compound interest. Note that plans that opt to allocate safe harbor matching contributions every pay period are required to fund this at least quarterly. When do we have to deposit employer contributions for year-end (e.g., true-up match or safe harbor deposits, employer profit sharing)? Employer contributions for the year are due in full by the company tax filing deadline, including any applicable extension. Safe harbor contributions have a mandatory funding deadline of 12 months after the end of the plan year for which they are due; typically for deductibility purposes, they are deposited even sooner.

How to Help Your Employees Deal with Financial Stress Employee financial concerns can have a major impact on your business. Learn what you can do to help ease employee financial stress. Financial stress has been felt by Americans since the birth of the country. The nature of that stress has obviously evolved and the COVID pandemic exacerbated many problems. Between juggling childcare responsibilities, student loans, medical expenses, across-the-board inflation – it’s no secret that employees are facing added pressure. And asking them to leave those stressors at the door when they start their workday may not be a realistic expectation. Consider this: Data from an American Psychological Association survey shows that in February 2022, 65% of Americans were stressed about money and the economy – the highest percentage recorded since 2015. Another recent survey found that 61% of Americans were living paycheck to paycheck, as of June 2022. And the biggest rise in paycheck-to-paycheck consumers were those earning between $100,000 and $150,000. One in 3 Americans said they’re either struggling or in a crisis with their personal finances, and over half said they had difficulty paying their bills, according to a report from Ramsey Solutions, The State Of Personal Finance In America 2022. Fifty-nine percent of Americans said they worry about their general finances daily, and about half have lost sleep in the last three months due to financial worries. What can you do to help ease employee financial stress? You don’t need a big, expensive financial wellness program to help your employees. To begin, think about financial wellness benefits resources you already have at your disposal: Does your health insurance plan have an Employee Assistance Program (EAP)? In addition to helping employees navigate health care issues, EAPs frequently offer advice on budgeting, debt consolidation, retirement savings planning, and more. Do you have an in-house expert? Enlist your CFO or another financially savvy manager, CFO, or HR professional, to share savings tips or lead an information session to address common financial issues. answer commonly asked financial questions. Do you offer a 401(k) plan? If so, your 401(k) provider likely offers a variety of educational tools and resources to help employees budget and save for retirement (and beyond). By leveraging these resources, and educating your employees about the benefits they are already receiving, you can begin the process of improving employee financial wellbeing. Betterment can help At Betterment, our mission is simple: to empower people to do what’s best for their money so they can live better. By using our online platform, employees can plan for their long- and short-term financial goals ranging from retirement to an emergency fund to a new house. Betterment’s unique technological solution: Takes into account employees’ ages, savings, and goals to create a personalized plan to help them save for the future they want. Enables employees to link their outside assets, making it easy for them to see a fuller picture of their personal finances. Can boost employees’ after-tax returns using tax-smart tools available at no additional management fee. Beyond saving for retirement, Betterment helps employees gain control of their finances so they can reduce their stress and focus on what matters most to them.

Employers Step Up and Stand Out with Student Loan Help Here's why more companies are taking an active role. Your staff could very well be loaded up with student loan debt. Heck, you might even have some yourself. None of this is news. But as student loan debt continues to snowball in the U.S.–up to $1.75 trillion as of July 2022– you may be less familiar with the all-hands-on-deck mentality many employers are now taking toward the problem. Companies are getting off the sideline and taking a more active role in helping their workers manage student loans. Here’s how and, more importantly, why. Why companies are adding student loan help to their benefits toolbox The story of how companies came to help with student loans is really the story of the 401(k), or more specifically, why so many employees weren’t touching theirs. A mystery at first, the answer has grown increasingly clear: it’s tough to save for the future when you’re still paying off the past. For employees with student loans, every dollar in their paychecks can represent a zero-sum decision. Do they service their student loans or contribute to their 401(k)? In recent years, however, both employers and employees have signaled a growing expectation to work together on the issue. More than half (57%) of employees believe their company should help them pay off student loans according to exclusive Betterment research on employee financial wellness. Some companies have taken the issue to heart. By complementing their 401(k) with student loan management, they can offer a more holistic compensation package, one that accounts for the drag student loan debt now has on the workforce as a whole. The benefits are numerous: Recruiting and retention advantages When it comes to benefits packages, 401(k)s have become the standard. Translation: beyond a generous match, they don’t always differentiate your company from others. Offering something of unique value can not only attract top talent but keep it. Nearly 9 out of 10 (86%) of young workers say they'd stay at least five years with a company if it helped with student loans. Two-way tax benefits Just like with 401(k)s, offering your staff a student loan management tool is one thing, but the real magic lies in the match. Why is that? It unlocks tax perks for both parties. Thanks to legislation passed by Congress in 2020 (aka the CARES Act), companies who maintain a qualified Section 127 Program can make tax-free annual contributions of up to $5,250 toward their employees’ student loans. This translates into a benefit that lowers both your company’s payroll taxes and your employees’ income taxes. This tax-free treatment is approved through 2025. What to look for in a Student Loan Management tool First and foremost, you want a streamlined admin experience. For many benefits admins, adding another vendor on top of their 401(k) provider is a non-starter. With Betterment, you can get both benefits synced and served up at the same time. If you’re already familiar with Betterment’s 401(k) product, Student Loan Management now slots into the all-in-one dashboard. Last but certainly not least, you want a tool that also makes your employees’ lives easier. Similar to the admin experience, we give your participants a clearer financial picture of their student loans and 401(k) all in one place. We also go the extra mile by helping them balance the competing demands of debt and investing. If you’re interested in bringing Student Loan management to your team, please get in touch. Student loan management services made available in partnership with Spinwheel Solutions, Inc.

Pros and Cons of OregonSaves for Small Businesses Answers to frequently asked questions about the OregonSaves retirement program for small businesses. Launched in 2017, OregonSaves was the first state-based retirement savings program in the country and has since surpassed managing $100 million in assets. Employers with 5 or more employees are already required to offer a plan; for employers with 4 employees or fewer, the deadline is March 1, 2023. If you’re wondering whether OregonSaves is the best choice for your employees, read on for answers to frequently asked questions. 1. Do I have to offer my employees OregonSaves? No. Oregon laws require businesses to offer retirement benefits, but you don’t have to elect OregonSaves. If you provide a 401(k) plan (or another type of employer-sponsored retirement program), you may request an exemption. 2. What is OregonSaves? OregonSaves is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, you must automatically enroll your employees into the program. Specifically, the Oregon plan requires employers to automatically enroll employees at a 5% deferral rate with automatic, annual 1% increases until their savings rate reaches 10%. All contributions are invested into a Roth IRA. As an eligible employer, you must facilitate the program, set up the payroll deduction process, and send the contributions to OregonSaves. The first $1,000 of an employee’s contributions will be invested in the OregonSaves Capital Preservation Fund, and savings over $1,000 will be invested in an OregonSaves Target Retirement Fund based on age. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. (They can also opt out of the annual increases.) 3. Why should I consider OregonSaves? OregonSaves is a simple, straightforward way to help your employees save for retirement. Brought to you by Oregon State Treasury, the program is overseen by the Oregon Retirement Savings Board and administered by a program service provider. As an employer, your role is limited and there are no fees to provide OregonSaves to your employees. 4. Are there any downsides to OregonSaves? Yes, there are factors that may may make OregonSaves less appealing than other retirement plans. Here are some important considerations: OregonSaves is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate in OregonSaves. For example, single filers with modified adjusted 2022 gross incomes of more than $144,000 would not be eligible to contribute. However, 401(k) plans aren’t subject to the same income restrictions. OregonSaves is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—OregonSaves only allows after-tax (Roth) contributions. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—IRA contribution limits are lower than 401(k) limits. The maximum may increase annually, based on cost-of-living adjustments (COLA), but not always. (The maximum contribution limits for IRAs stayed stagnant from 2019 through 2021 and increased slightly in 2022.) So even if employees max out their contribution to OregonSaves, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, OregonSaves does not. Limited investment options—OregonSaves offers a relatively limited selection of investments, which may not be appropriate for all investors. Typical 401(k) plans offer a much broader range of investment options and often additional resources such as managed accounts and personalized advice. Potentially higher fees for employees—There is no cost to employers to offer OregonSaves; however, employees do pay approximately $1 per year for every $100 in their account, depending upon their investments. While different 401(k) plans charge different fees, some plans have far lower employee fees. Fees are a big consideration because they can seriously erode employee savings over time. 5. Why should I consider a 401(k) plan instead of OregonSaves? For many employers —even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you can benefit from: Tax credits—Thanks to the SECURE Act, you can now receive up to $15,000 in tax credits to help defray the start-up costs of your 401(k) plan over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over three years. It’s important to note that the proposed SECURE Act 2.0 may offer even more tax credits. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contribution limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with OregonSaves, that means more employee savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that OregonSaves is most appropriate for your company, visit the website to register. If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running —and aim to simplify ongoing plan administration. Plus, our fees are at one of the lowest costs in the industry. That can mean more value for your company—and more savings for your employees. Get started now. Betterment is not a tax advisor, and the information contained in this article is for informational purposes only.

Pros and Cons of the New York State Secure Choice Savings Program Answers to small businesses' frequently asked questions The New York State Secure Choice Savings Program was established to help private-sector workers in the state who have no access to a workplace retirement savings plan. Originally enacted as a voluntary program in 2018, Gov. Kathy Hochul signed a law on Oct. 22, 2021, that requires all employees of qualified businesses be automatically enrolled in the state's Secure Choice Savings Program. If you’re an employer in New York, state laws require you to offer the Secure Choice Savings Program if you: Had 10 or more employees during the entire prior calendar year Have been in business for at least two years Have not offered a qualified retirement plan during prior two years If you’re wondering whether the Secure Choice Savings Program is the best choice for your employees, read on for answers to frequently asked questions. 1. Do I have to offer my employees the Secure Choice Savings Program? No. State laws require businesses with 10 or more employees to offer retirement benefits, but you don’t have to elect the Secure Choice Savings Program if you provide a 401(k) plan (or another type of employer-sponsored retirement program). 2. What is the Secure Choice Savings Program? The Secure Choice Savings Program is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, if you don’t offer a retirement plan, you must automatically enroll your employees into a state IRA savings program. Specifically, the New York plan requires employers to automatically enroll employees at a 3% deferral rate. As an eligible employer, you must set up the payroll deduction process and remit participating employee contributions to the Secure Choice Savings Program provider. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. 3. Why should I consider the Secure Choice Savings Program? The Secure Choice Savings Program is a simple, straightforward way to help your employees save for retirement. According to SHRM, it is managed by the program’s board, which is responsible for selecting the investment options. The state pays the administrative costs associated with the program until it has enough assets to cover those costs itself. When that happens, any costs will be paid out of the money in the program’s fund. 4. Are there any downsides to the Secure Choice Savings Program? Yes, there are factors that may make the Secure Choice Savings Program less appealing than other retirement plans. Here are some important considerations: The Secure Choice Savings Program is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate. For example, single filers with modified adjusted gross incomes of more than $144,000, as of 2022, would not be eligible to contribute. If they mistakenly contribute to the Secure Choice Savings Program—and then find out they’re ineligible—they must correct their error or potentially face taxes and penalties. However, 401(k) plans aren’t subject to the same income restrictions. New York Secure Choice is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—Illinois only offers after-tax contributions to a Roth IRA. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—Employees may save up to $6,000 in an IRA in 2022 ($7,000 if they’re age 50 or older), while in a 401(k) plan employees may save up to $20,500 in 2022 ($27,000 if they’re age 50 or older). So even if employees max out their contribution to the Secure Choice Savings Program, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, the Secure Choice Savings Program does not. Limited investment options—Secure Choice Savings Program offers a relatively limited selection of investments. 5. Why should I consider a 401(k) plan instead of the Secure Choice Savings Program? For many employers—even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you’ll benefit from: Tax credits—Thanks to the SECURE Act, you can now receive up to $15,000 in tax credits to help defray the start-up costs of your 401(k) plan over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over the course of three years. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contributions limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with New York Secure Choice that means more employer savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that New York’s Secure Choice Savings Program is most appropriate for your company, visit the New York Secure Choice website to learn more. If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running —and aim to simplify ongoing plan administration. Plus, our fees are at one of the lowest costs in the industry. That can mean more value for your company—and more savings for your employees. Get started now.

Pros and Cons of CalSavers for Small Businesses Answers to frequently asked questions about the CalSavers Retirement Savings Program If you’re an employer in California with 5 or more employees, you must offer the CalSavers Retirement Savings Program—or another retirement plan such as a 401(k). Faced with this decision, you may be asking yourself: Which is the best plan for my employees? To help you make an informed decision, we’ve provided answers to frequently asked questions about CalSavers: 1. Do I have to offer my employees CalSavers? No. California laws require businesses with 5 or more employees to offer retirement benefits, but you don’t have to elect CalSavers. If you provide a 401(k) plan (or another type of employer-sponsored retirement program), you may request an exemption. 2. What is CalSavers? CalSavers is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, if you don’t offer a retirement plan, you must automatically enroll your employees into a state IRA savings program. Specifically, the CalSavers plan requires employers with at least five employees to automatically enroll employees at a 5% deferral rate with automatic annual increases of 1%, up to a maximum contribution rate of 8%. As an eligible employer, you must withhold the appropriate percentage of employees’ wages and deposit it into the CalSavers Roth IRA on their behalf. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. 3. Why should I consider CalSavers? CalSavers is a simple, straightforward way to help your employees save for retirement. CalSavers is administered by a private-sector financial services firm and overseen by a public board chaired by the State Treasurer. As an employer, your role is limited to uploading employee information to CalSavers and submitting employee contributions via payroll deduction. Plus, there are no fees for employers to offer CalSavers, and employers are not fiduciaries of the program. 4. Are there any downsides to CalSavers? Yes, there are factors that may make CalSavers less appealing than other retirement plans. Here are some important considerations: CalSavers is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate in CalSavers. For example, single filers with modified adjusted gross incomes of more than $140,000 would not be eligible to contribute. If they mistakenly contribute to CalSavers—and then find out they’re ineligible—they must correct their error or potentially face taxes and penalties. However, 401(k) plans aren’t subject to the same income restrictions. CalSavers is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—CalSavers only offers after-tax contributions to a Roth IRA. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—IRA contribution limits are lower than 401(k) limits. The maximum may increase annually, based on cost-of-living adjustments (COLA), but not always. (The maximum contribution limits for IRAs stayed stagnant from 2019 through 2021 and increased slightly in 2022.) So even if employees max out their contribution to CalSavers, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, CalSaver does not. Limited investment options—CalSavers offers a relatively limited selection of investments, which may not be appropriate for all investors. Typical 401(k) plans offer a much broader range of investment options and often additional resources such as managed accounts and personalized advice. Potentially higher fees for employees—There is no cost to employers to offer CalSavers; however, employees do pay $0.83-$0.95 per year for every $100 in their account, depending upon their investments. While different 401(k) plans charge different fees, some plans have lower employee fees. Fees are a big consideration because they can erode employee savings over time. 5. Why should I consider a 401(k) plan instead of CalSavers? For many employers —even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you’ll benefit from: Tax credits—Thanks to the SECURE Act, you can now receive up to $15,000 in tax credits to help defray the start-up costs of your 401(k) plan over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over three years. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also likely have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contributions limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with CalSavers, that means more employer savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that CalSavers is most appropriate for your company, visit the CalSavers website to register. If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running —and aim to simplify ongoing plan administration. Plus, our fees are at one of the lowest costs in the industry. That can mean more value for your company—and more savings for your employees. Get started now. Betterment is not a tax advisor, and the information contained in this article is for informational purposes only.